In Practice June 8, 2007

It’s A Matter of Trust

As adviser client relationships move from one that revolves around picking investments to one more focused on personal counseling and education, it’s important to maintain trust.
Reported by
In fact, 69% of clients say trustworthiness is the most important attribute in the selection of an adviser, according to a recent report by State Street Global Advisors and Knowledge @ Wharton, report, titled “Bridging the Trust Divide: The Financial Advisor-Client Relationship.”
According to the paper, there are three levels of trust between advisers and clients:
  • trust in technical competence and knowledge;
  • trust in ethical conduct and character; and
  • trust in empathetic skills and maturity.
The first type of trust, according to the paper, can be summarized by the question “Do I trust that you know what you’re doing?” Investors turning to financial advisers want someone who is experienced and knowledgeable. Investors want help making difficult financial and personal decisions – and trust in their adviser’s ability to provide that assistance is fostered by a high level of technical competence. In fact, about half of clients (47%) said knowledge is the most important attribute to serving clients well, while only 26% of advisers agreed.
Advisers cautious of overemphasizing their personal skills may in fact be hurting their credibility with clients, the report said. However, the authors cautioned that an adviser must emphasize his or her skills correctly, in a way that is clear but not overly simplistic.

Reputation Risks

The second type of trust is represented by the question, “Do I trust you not to steal money from me?” What is often important here is reputation, which can sometimes mean brand, the paper said. According to Eric Bradlow and David Reibstein, Wharton marketing professors cited in the report, financial services companies, who have established brands, may have an edge with potential clients.
Lastly, clients want to know that if they share personal details about themselves or their family, the adviser will be able to handle that information professionally. Investors are now turning to advisers are looking for help with “softer” advisory services, the report says, such as personal counseling and instruction. Clients are looking to connect with their adviser on a more personal level, similar to a desired relationship with a doctor. Advisers who are not able to “integrate the financial and personal into their financial advisory process…will likely face limitations in the advisor-client relationship and may find that they are ultimately unable to satisfy the client.”

Not a Fixed Quantity

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Even if those three levels of trust are present at first, the report warns that “trust is not a fixed quantity and is easily diminished.” Although people may think that weak investment returns are why advisers lose clients, Bradlow says “advisers tend to underrate the importance of professionalism.”
Bradlow says the professionalism of an adviser’s staff when working with clients is very important to building a client’s trust in an adviser, especially because 80% of a client’s contact is frequently with an adviser’s assistant and support staff, not the adviser. If staff isn’t reinforcing the adviser’s persona and brand, it can be difficult for clients to get a solid sense of who they are working with – impeding the development and fostering of trust.

«